ATO Interpretative Decision
ATO ID 2003/95 (Withdrawn)
Income Tax
Deemed dividends: Written loan agreement - no repayments in year loan madeFOI status: may be released
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This ATO ID is withdrawn and replaced by ATO ID 2010/206.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
Status of this decision: Decision Withdrawn 12 November 2010
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a private company taken under section 109D of the Income Tax Assessment Act 1936 (ITAA 1936) to pay a dividend in the income year in which a loan to a shareholder was made where:
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- the criteria in section 109N of the ITAA 1936 in relation to the loan concerning written agreement, minimum interest rate and maximum term are satisfied, but
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- the taxpayer does not make any repayments in respect of the loan in the income year in which the loan is made?
Decision
No. Where the criteria in section 109N are met section 109D of the ITAA 1936 does not apply, even if the taxpayers makes no repayments in respect of the loan in the year the loan is made.
Facts
During the 2000-01 income year, a private company made an unsecured loan to the taxpayer, an individual and the company's sole shareholder. As at 30 June 2001, the loan was not fully repaid. The private company did not make any other loans to the taxpayer during the 2000-01 income year.
The loan was made under a written agreement, with a maximum term of 7 years and with a minimum rate of interest payable equal to the benchmark interest rate for the year.
The loan from the private company to the taxpayer satisfies the requirements of section 109N of the ITAA 1936.
Reasons for Decision
A private company is taken to pay a dividend under subsection 109D(1) of the ITAA 1936 at the end of its income year if:
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- the private company makes a loan to a shareholder during the current year (in this case, the 2000 - 01 year),
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- the loan is not fully repaid by the end of that year, and
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- Subdivision D does not prevent the loan from being treated as a dividend.
Subdivision D of Division 7A contains a number of exclusions to the application of subsection 109D(1). Section 109N of Subdivision D prevents a private company from being taken to pay a dividend where:
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- the loan is made under a written agreement and the rate of interest payable on the loan for the income year after the year in which the loan is made, equals or exceeds the benchmark interest rate for the year, and
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- the term of the loan does not exceed the maximum term, which is seven years in the case of unsecured loans. (Refer to subsections 109N(1) and 109N(3) of the ITAA 1936.), and
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- Section 109N does not require that a minimum yearly repayment to be made in the year in which the loan is made.
Where a minimum yearly repayment is not made in a subsequent year and the loan meets the definition of an 'amalgamated loan', section 109E of the ITAA 1936 may operate to treat the loan made in the previous year as a dividend.
However, where the criteria in section 109N are met, section 109D does not apply, even if the taxpayer makes no repayments in respect of the loan in the year the loan is made.
Date of decision: 4 December 2001
Legislative References:
Income Tax Assessment Act 1936
section 109D
section 109N
section 109E
section 109P
ATO ID 2003/96
ATO ID 2003/97
Keywords
Companies
Shareholder loans
Private company distributions
ISSN: 1445-2782
| Date: | Version: | |
| 4 December 2001 | Original statement | |
| You are here → | 12 November 2010 | Archived |